Fertilizer Trade Too Frothy?

Catherine Holahan of CNBC's "Fast Money"

Wednesday, 19 Jan 2011 | 11:40 AM ETCNBC.com

SHARES

Is the fertilizer trade growing too frothy?

The "Fast Money" traders debated that very question Wednesday morning following reports that meat and grain supplier Cargill will sell its 64 percent stake in fertilizer company Mosaic . Shares of Mosaic were down nearly 6 percent on the news.

“As much as I am a believer in what has been going on in the long-term fertilizer story, I do think that there is a place to take profits here,” said Tim Seymour, founder of EmergingMoney.com. “Valuations are extraordinary.”

The combined market cap of fertilizer giants Mosaic, Potash , Agrium and others swelled last year as commodity prices soared. The price of wheat, corn, cotton and oat futures have all jumped more than 50 percent in the past year. Cotton is up more than 100 percent. Shares of Potash are up more than 103 percent from its 52-week low.

Commodity price hikes generally fuel fertilizer company revenues because higher prices encourage farmers to plant more, stoking demand. Fertilizer companies can also easily raise prices on farmers when they are making more for their crops.

BHP Billiton’s hostile $39 billion bid for Potash in August also pushed valuations in the fertilizer space higher. The offer, ultimately rejected by Potash, was a 16 percent premium on the company’s trading price at the time.

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